Cairn to pay 70% cost of Rajasthan pipeline

London: UK-based oil explorer Cairn Energy on 27 March said it had a preliminary deal to build a pipeline to transport crude from its Rajasthan fields, reducing the likelihood that the fields’ startup will be delayed.

Cairn chief executive Bill Gammell said the company had agreed a plan with field partner Oil and Natural Gas Corp. Ltd (ONGC), under which Cairn’s Indian unit, Cairn India Ltd, would pay 70% of the cost of the pipeline, and ONGC the rest.

State-owned ONGC had initially said it would build the pipeline, which is expected to cost $500-700 million, but then changed its mind under a new chairman, Gammell told a conference call for reporters.

The chief executive added that Cairn still hoped to agree a final deal, which hinges on government approval, in the first half of this year but analysts were disappointed the company did not offer firmer guidance.

Cairn’s shares fell to trade down 1.16% at 1615 pence at 0752 GMT, underperforming a 0.6% rise in the DJ Stoxx European oil and gas sector index.

The Edinburgh-based company also disappointed investors by downgrading reserves at its Sangu gas field in Bangladesh.

Cairn reported a loss of $82 million for 2006, mainly related to the Sangu downgrade. This compares with a profit of $79.1 million in 2005 and an average forecast for a loss of $29 million, according to a Reuters Estimates poll of analysts.

Cairn said it hoped to increase reserves and prolong peak production at the Rajasthan fields by using enhanced oil recovery techniques.

“Over time, reserves will increase. We have no doubt about that,” exploration boss Mike Watts said.

Cairn India was floated on the Bombay Stock Exchange and the National Stock Exchange in January, but Cairn retains a 69.5% stake in the company.